TODAY’S STUDY: BUILDING WIRES IS A GREAT INVESTMENT WITH A BIG PAYOFF

To make money, it is necessary to spend money. To benefit from the rich energy assets this nation is blessed with – its sun, wind, deep heat and flowing waters – it is necessary to have a transmission system that can deliver them from the dispersed corners of the country where they can be most readily harvested to the urban centers where they are most in demand.

It is astonishing how short-sighted those in the thrall of the traditional energies can be. At a recent Senate committee hearing, West Virginia’s Joe Manchin proposed the government fund a nationwide pipeline to deliver coal plant CO2 to oil fields where it theoretically could be used to enhance the recovery of oil.

It would be a mind-bogglingly enormous and expensive undertaking. Yet the Senate cannot bring itself to provide the far more humble incentives the U.S. New Energy industries need to remain competitive with their peers in Asia and Europe, where long-term New Energy supports are beginning to make it possible to turn away from the Old Energies.

The report highlighted below found that a $12-to-$16 billion annual investment is anticipated the North America’s electricity grid over the next two decades. It will provide worthy rehabilitation for a transmission system that former CIA Director R. James Woolsey has said could probably not have been intentionally designed to be more fragile and vulnerable. It will also, the report found, result in $30-to-$40 billion a year in economic activity and support 150,000-to-200,000 jobs over the same two decades.

Not a bad payoff for the spending. Senator Manchin’s CO2 pipeline, by comparison, would be an absurd waste. After all the enhanced oil drilling was done, more than 90 percent of the coal plant spew would still need to be disposed of. That would necessitate another monstrous investment in CO2 storage, a technology so uncertain and potentially volatile it has found no long term insurer.

To capture the CO2, by the way, the nation’s roughly 500 coal plants would need to be retrofitted with new technology, another monstrous expense.

After all that spending on unproven technology, the nation would still be dependent on coal, a dependence that is destroying the mountains, despoiling the rivers and polluting the air. It would remain dependent on the wasteful, energy-intensive and emissions-intensive processes of mining, transporting, burning and filtering the coal to generate electricity.

And the transmission system to deliver that electricity would still need to be rebuilt, expanded and modernized.

Why spend on a money pit when spending can be productive? Investing in efficiency will produce savings that can be used to build New Energy infrastructure. Investing in wires will pay for itself and deliver the New Energy, allowing the nation to reap the pollution-free benefits.

The formula for securing the nation’s energy, freeing it from dependence on foreign imports, ending environmentally devastating energy practices and redeeming the domestic economy is so simple: Renew the grid, electrify road and rail transport so it runs off the grid, and power the grid with the ever-renewable gifts of this good earth.

Employment and Economic Benefits of Transmission Infrastructure Investment in the U.S. and Canada
Johannes P. Pfiefenberger and Delphine Hou, May 2011 (Working group for Investment in Reliable and Economic electric Systems, WIRES, and The Brattle Group)

Executive Summary

WIRES, also known as the Working Group for Investment in Reliable and Economic electric Systems, asked The Brattle Group to estimate long-term transmission investment needs and associated employment, economic stimulus, and other benefits in the U.S. and Canada.

Our analysis shows that U.S.-wide transmission investment will likely range from $12 billion to $16 billion annually through 2030, assuming current barriers to planning, permitting, and cost recovery of regional transmission projects can be overcome. We estimate that this level of investment will stimulate $30 billion to $40 billion in annual economic activity (sales and resales of goods and services) and support 150,000 to 200,000 full-time jobs ("full-time equivalent" or "FTE" jobs) each year over this 20 year period. We have also identified C$45 billion in planned Canadian transmission investments through 2030, averaging C$5 billion annually over the next several years. This level of Canadian investment will support between 20,000 and 50,000 fulltime jobs annually. Once operational, the expanded transmission infrastructure will also enable additional economic activity, such as the construction of renewable generation projects, which is estimated to support 130,000 to 250,000 full-time jobs in the U.S. during each year of the projected 20-year renewable generation construction effort.

In addition to these employment and economic stimulus benefits from constructing the facilities and manufacturing equipment, strengthening of the transmission grid provides important other benefits, including:

•Reduced transmission losses, production cost savings, enhanced wholesale power market competition and liquidity, and associated wholesale power price reductions;

•The economic value of increased reliability, insurance against high-cost outcome sunder extreme market conditions, and increased flexibility of grid operations;

•Generation investment cost savings and access to lower-cost renewable generation;

•Reduced emissions and fossil fuel consumption; and

•Economic benefits from increased federal, state, and local tax income.

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These operations-phase benefits of an enhanced transmission grid tend to be wide-spread geographically, diverse in their effects on individual market participants, occur over long periods of time (i.e., several decades) and, as we show with several examples, more than offset the rate impacts of investment cost recovery.

This analysis differs from other studies of local employment benefits of transmission investments by assessing these benefits from a nation-wide perspective. To accomplish this, we first estimated the likely range of nation-wide transmission investments through 2030, starting with a detailed accounting of the near-term and likely long-term investment needs. We then measured the total employment and economic activity stimulated by the increased spending on transmission infrastructure (i.e., manufacturing, construction, and services). This economic activity includes the impacts of transmission construction spending, manufacturing of transmission equipment, and supporting services.

Our analysis considers those impacts in three distinct categories. Direct effects represent the changes in employment and economic activity in the industries which directly benefit from the investment (i.e., construction companies, transmission materials and equipment manufacturing, and design and engineering services). Indirect effects measure the changes in the supply chain and inter-industry purchases generated from the transmission construction and manufacturing activities (e.g., suppliers to transmission equipment manufacturers). Induced effects reflect the increased spending on housing, food, clothing, and other services by those who are directly or indirectly employed in the construction of the transmission lines and substations. To quantify all of these impacts, we relied on the Minnesota IMPLAN Group Model, which is widely used by economists and policy analysts to estimate how investments affect every sector of a state’s or region’s economy.

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These simulations show that every $1 billion of U.S. transmission investment supports approximately 13,000 full-time-equivalent (“FTE”) years of employment and $2.4 billion in total economic activity. If the $1 billion is spent over the course of one year, this means the investment will support approximately 13,000 FTE jobs in that year. Furthermore, our analysis suggests that the average transmission investment from 2011 through 2030 will likely range from $12 billion to $16 billion per year or $240 billion to $320 billion over the next 20 years (in 2011 dollars) assuming current barriers to planning, permitting, and cost recovery of regional transmission projects can be overcome. A significant portion of this range will depend on the scope of future renewable portfolio standards and the type of renewable generation projects that will be developed.

As summarized in the table below, this level of U.S.-wide transmission investment supports 150,000 to 200,000 FTE jobs and $30 billion to $40 billion in annual economic activity. The table shows that approximately one-third of this employment benefit is associated with the direct construction and manufacturing of transmission facilities. Two-thirds of the total impact is associated with indirect and induced employment by suppliers and service providers to the transmission construction and equipment manufacturing sectors.

As noted, a portion of the projected transmission investments will also enable development of the renewable generation projects needed to meet existing and potential future state or federal Renewable Portfolio Standard ("RPS") requirements. This renewable generation investment is estimated by various studies to support approximately 2.6 million to 5 million FTE-years of employment, or on average 130,000 to 250,000 FTE jobs during each year over the projected 20-year renewable generation construction effort, in addition to the direct impacts of manufacturing and constructing the transmission itself. Additional employment benefits are associated with the operations phase of these projects.

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Introduction

A robust transmission grid not only ensures reliable delivery of electricity but provides many other benefits such as reducing power production costs and transmission losses, fostering competition in electricity markets, facilitating renewable energy development, and providing insurance against extreme events such as local power shortages due to weather and other factors. Investment in transmission infrastructure also supports employment and stimulates the economy.

Despite a dearth in spending during and prior to the 1990s, the last decade has seen a steady and significant increase in transmission investment as reliability needs are getting addressed and aging facilities are being upgraded or replaced. However, meeting economic and public policy goals, in particular congestion relief and renewable energy standards, has created additional growing needs of transmission investment, underscoring the multi-faceted benefits of a robust transmission network, which the recent increase in investments has only started to address.

WIRES, also known as the Working Group for Investment in Reliable and Economic electric Systems, asked The Brattle Group to estimate future transmission investment needs in the U.S. and Canada and analyze the employment, economic stimulus, and other benefits provided by these investments over the next 20 years.

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The results of our analysis are presented in this report, which is organized as follows. Section II presents recent U.S. historical, near-term, and long-term transmission investments through 2030 as well as an estimate of projected transmission investments in selected Canadian markets. Section III summarizes existing transmission-investment-related employment and economic stimulus impact studies and presents our own analysis of these benefits on a national U.S. and Canadian scale. Section IV discusses and provides examples of the many other benefits of a robust transmission infrastructure, showing that these benefits can be significantly greater than costs. Finally, our conclusions are presented in Section V.

This study is focused on the employment and economic activity stimulated by transmission construction and manufacturing activities (“economic stimulus” benefits), which does not include the employment and economic stimulus effects from investments in distribution networks, generation facilities, or new businesses facilitated by improved infrastructure. However, we briefly address the employment benefits of renewable energy development facilitated by transmission investments. The report also discusses the full range of benefits that the improved transmission infrastructure provides during the long operating life of the transmission facilities—including increased reliability, reduced congestion and losses, and more competitive wholesale markets for electric power. While we are not able to provide a nationwide estimate of the economic value of these operations-phase benefits due to their highly project- and location-specific nature, we present examples to document the potential magnitude of these benefits.

To measure the employment and overall economic activity supported by transmission investments during the construction phase, we rely on a class of models known as input-output models. Input-output models are universally used by economists and policy analysts to estimate how specified investments affect every sector of a state’s or region’s economy. The model we employ is the well-known and widely-used IMPLAN Model of the Minnesota IMPLAN Group. It is used by the U.S. Army Corps of Engineers, U.S. Department of Commerce, the Bureau of Economic Analysis, the U.S. Department of Interior, the Bureau of Land Management, and the Federal Reserve System member banks, among others. Similarly, the industry reports we have surveyed as a complement to our nation-wide analysis rely on the same or similar input-output models, but applied them for regional or state level analyses. Our analysis differs from other studies of local employment benefits of transmission investments by assessing these benefits from a nation-wide perspective.

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Although we do not address in detail the many challenges and barriers to transmission investments faced by the industry today such as the uncertainties associated with current regional planning, permitting, and cost recovery practices, we acknowledge that they exist. Unless mitigated, they will impair, perhaps dramatically, the ability of utilities and other private transmission providers to succeed in making needed improvements to the high-voltage system. We have addressed many of these matters in prior studies and presentations, which are listed in the bibliography provided in Appendix B.

Transmission Investment Trends

We first discuss the recent historical, near-term, and long-term transmission investment trends for the U.S. In addition to documenting and projecting investment levels, we also present investment by types of transmission ownership, voltage levels, region, and the circuit-miles of the projected build-out.

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Historical U.S. Transmission Investments

U.S. transmission investment has significantly increased over the last 10 years. As Figure 1 shows, investment by investor-owned utilities (“IOUs”, including investor-owned transmission companies) has quadrupled from approximately $2 billion per year in the 1990s to $8 billion to $9 billion per year during 2008 and 2009.

As shown in more detail in Appendix A, approximately 70% of total U.S.-wide transmission investments are associated with transmission investments in the Eastern Interconnection compared with approximately 25% in the West and approximately 5% in Texas. As Figure 2 and Appendix A also show, investments by investor-owned entities account for 68% to 69% of total U.S.-wide investments. Transmission investments by cooperative, municipal, state, and federal power agencies account for just over 30% of total U.S. transmission investments.

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Projected Near-Term U.S. Investment: 2011-2015

Figure 2 documents historical and projected U.S.-wide transmission infrastructure investments for 1995 through 2015 based on a composite of individual transmission data collected from various industry sources. The investment levels are inflation-adjusted to reflect 2011 dollar values.

Historical investment data for investor-owned entities is available through 2009. Investment data for all other transmission owners is available only through 2003, which required us to estimate investments for 2004 through 2009 based on historical average investment shares and projected future circuit-mile additions by investor-owned and other transmission owners.

Figure 2 also shows projected U.S. transmission investments through 2015 based on: (1) projected capital expenditure growth rates from the Edison Electric Institute (“EEI”) applied to total 2009 U.S.-wide transmission investment levels; and (2) estimated investment requirements associated with transmission circuit-mile additions from reports that transmission owners provide to the North American Electric Reliability Corporation (“NERC”) on a voluntary basis. Additional details about data sources and our projections are presented in Appendix A.

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The range between the blue and green lines documents some of the uncertainty in annual transmission investment levels, ranging from a low of approximately $8 billion a year to a possible high that may exceed $18 billion per year. Considering overall trends and the limitation of the available data sources, we estimate that U.S.-wide transmission investments will likely average between $12 billion to $16 billion annually over the five years through 2015. This yields a projected total investment of $60 billion to $80 billion for the entire 2011-2015 period.

Drivers and Voltage Levels of U.S. Transmission Investments

Historically, reliability needs and generation interconnection needs were the main drivers of transmission investments. Moving forward, reliability will continue to be a significant driver. Figure 3 shows the breakdown of U.S. transmission investments by driver as reported by NERC in its circuit-mile data for 2011-2015.

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As shown in Figure 3, reliability needs have been identified as the main driver for almost half of all projected circuit-mile additions for 2011-2015, although this includes at least some projects that address reliability needs associated with the integration of renewable generating resources. Approximately 40% of reported circuit-mile additions is driven by “economic” (e.g., congestion relief) justification and “renewable integration” requirements. Note, however, that this categorization of main investment drivers is greatly dependent on the often inconsistent judgment of main drivers by individual transmission owners, which reflects the fact that most major transmission projects address multiple needs and provide a variety of benefits, ranging from reliability, to congestion relief, and renewable integration.

As also shown in Figure 3, two-thirds of all reported circuit-mile additions through 2015 are facilities operating at a voltage level above 300 kV, which indicates significant investments in regional transmission facilities. The remaining one-third of total circuit-mile additions are facilities at voltage levels between 100 kV and 300 kV. Not reflected in these data are additional investments associated with transmission facilities operating at voltage levels below 100 kV.

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Projected Long-Lerm U.S. Investment: 2016-2030

Table 1 summarizes recently published national and regional analyses of U.S. transmission investment needs. For each of the listed studies, the table reports the time horizon, the scope of the study (e.g., region of analysis and primary driver), projected transmission investment amounts, and our calculation of average annual investment in 2011 dollars.

As shown, the Edison Foundation report previously prepared by The Brattle Group (item 1) projected $300 billion of transmission investments from 2010 through 2030 (in nominal dollars). This amounts to an annual average of $11 billion in investments per year in 2011 dollars after adjusting for inflation. This projection reflects total transmission investments at all voltage levels and types of transmission facilities (i.e., transmission line and substations) for both investor-owned and other transmission owners.

The next data set (item 2 in Table 1) provides ranges of transmission investments to integrate renewable (wind and utility-scale solar) generation to meet increasing renewable energy policy requirements under currently-effective state-level RPS requirements and a hypothetical 20% federal RPS. These investment ranges are based on low, mid-point, and high estimates for the costs of regional transmission upgrades…The resulting transmission investment requirement ranges from $3.1 billion to $5.5 billion per year to meet existing state level RPS. This range would increase to $6.3 billion to $10 billion per year if a 20% federal RPS or equivalent additional state-level requirements were implemented. Additional details about this analysis are presented in Appendix A.

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The Eastern Wind Integration and Transmission Study (“EWITS,” listed as item 3 in Table 1) is the most recent publication in a series of transmission and renewable energy studies released by the Department of Energy and its National Renewable Energy Laboratory (“NREL”). Though EWITS is focused on transmission expansion to interconnect renewables, its analysis also added traditional fossil fuel-fired generation to meet resource adequacy requirements (net of energy efficiency measures), in addition to an assumed baseline of transmission upgrades. EWITS analyzed a reference scenario to meet existing state-level RPS as well as three scenarios to meet a 20% federal RPS with a combination of on- and off-shore wind generation through 2024. However, EWITS estimated transmission investment requirements (incremental to a baseline of transmission upgrades to meet near-term reliability and renewable energy needs) only for voltage levels at 345 kV and higher and focused only on the Eastern Interconnection. We have consequently scaled the EWITS data to reflect total U.S. investment at 345 kV and higher based on the projected Eastern Interconnection’s share of total U.S.-wide transmission investments, which is a range up to 70%. This yields a 2015-2024 transmission investment need for facilities at voltage levels of 345 kV and above of $4.6 billion to $8.6 billion per year under the state RPS scenario and between $9.5 billion to $14 billion per year under the federal RPS scenarios.

The variation in transmission investment estimates shown in Table 1 illustrates the still significant uncertainty about renewable resource integration requirements, which reflects both uncertainty about the ultimate scope and magnitude of renewable portfolio standards and the transmission costs associated with renewable resource development scenarios. Considering that many of the lowest-cost renewable resources are distant from load centers, significant transmission investments would be cost effective to reach these low-cost resources.4 A potentially significant portion of these investments would be required to meet reliability standards and to upgrade or replace aging existing facilities even in the absence of RPS standards.

In addition to the high-level studies of likely investment levels summarized above, a substantial number of individual transmission projects have already been proposed to address the identified needs. Figure 4 is based on project-level data we have collected for over 130 mostly conceptual and often competing projects, including early-stage merchant transmission proposals, each with at least $100 million in investment requirements.

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The total investment need for this collection of proposed and conceptual projects amounts to approximately $180 billion. A significant proportion of these proposed projects are driven by large-scale renewables integration needs. As the table below the map in Figure 4 shows, only approximately $25 billion of these projects have already been approved in the transmission plans of regional transmission organizations (“RTOs”). We estimate that of the remaining $150 billion in proposed and often still highly conceptual transmission projects that are not even considered in regional planning processes yet, approximately one-third to one-half will not be realized due to overlaps with competing projects, planning and cost allocation challenges, and high costs. While we cannot predict exactly which challenges will arise in specific cases, we have netted out $70 billion of overlapping or competing projects, for a total net investment need of over $80 billion in non-overlapping proposed and conceptual projects that are not already in RTO approved transmission plans. Combined with approximately $25 billion in RTO-approved projects, the identified transmission projects represent a U.S. investment need of approximately $110 billion. If all of these planned and conceptual projects were to be realized over the 2015 to 2025 time frame, the annual investment requirement would be approximately $11 billion per year.

It is difficult to project long-term transmission investment needs considering the many uncertainties and investment barriers faced by the industry today. These uncertainties span a broad range of considerations from policy- and environment-related concerns such as renewable portfolio standards, carbon policies and other environmental requirements, to uncertainties associated with maintaining reliability such as retirement and additions of conventional generation sources and investments required to upgrade or replace aging existing transmission lines and equipment. As we discuss briefly at the end of this section, the industry also faces significant barriers to the planning, permitting and cost recovery of transmission projects, in particular with respect to regional (i.e., multi-state) build-outs. The annual transmission investment levels indicated in Figure 4 and Items 2 and 3 in Table 1 exclude “baseline” investments in transmission facilities such as reliability projects, new transmission needed for local load serving purposes (including transmission facilities at lower voltage levels), and the replacement or upgrades of aging transmission and substation facilities. We believe these baseline investment needs will be at least equal to the transmission investment levels observed in the 1990s, a decade of minimal investment, or about $5 billion annually as shown in Figure 2.

Based on these baseline transmission investment needs and the transmission investments identified in Table 1 and Figure 2, the longer-term transmission investment needs will likely be consistent with the identified 2011-15 investment trends. As a result, we estimate that long-term investments through 2030 will be consistent with the near-term U.S. investment levels of $12 billion to $16 billion per year on average. This means total transmission investments from 2011 through 2030 must be expected to range from $240 billion to $320 billion (in 2011 dollars), depending on the resolution of the identified uncertainties, such as the ultimate scope of future RPS standards and related regional transmission need and the reduction of existing barriers to efficient development…

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Conclusions

Based on recent historical transmission investment data and projections from a variety of industry sources, we estimate that U.S.-wide transmission investments will average approximately $12 billion to $16 billion per year through 2015, with a total investment of approximately $60 billion to $80 billion over the next five years. Our analysis also shows that this $12 billion to $16 billion range of average annual U.S. transmission investments projected for the next five years will likely continue through 2030. This means total transmission investments from 2011 through 2030 are expected to range from $240 billion to as much as $320 billion (in 2011 dollars). Whether future transmission investments will fall within this range is conditional on overcoming a number of existing barriers to regional transmission investments. Where future investments fall within this range in part depends on the resolution of uncertainties, such as renewable energy policy requirements.

Canadian transmission investments are estimated at approximately C$5.2 billion annually over the next several years, with a total of approximately C$45 billion in already-identified transmission projects through 2030.

As discussed in Section IV of our report, the benefits of transmission investments are broad in scope (i.e., ranging from production cost savings to regional reliability to increased competition in wholesale power markets), wide-spread geographically (i.e., multiple states or regions), diverse in their effects on individual market participants, and occur over a long period of time (i.e., several decades). One such benefit is the employment and economic activity stimulated by the transmission investment itself, which includes benefits from both construction and manufacturing activities.

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Our U.S.-wide economic analysis shows that every billion dollars of transmission infrastructure investment supports approximately 13,000 full-time-equivalent (“FTE”) years of employment and $2.4 billion in total economic activity (i.e., the sales and resales of goods and services). These results mean that the projected $12 billion to $16 billion of annual U.S. transmission investments will support approximately 150,000 to 200,000 full-time jobs and $30 billion to $40 billion in annual economic activity. Approximately one-third of this employment benefit is associated with the “direct” construction and manufacturing of transmission facilities. Two-thirds of the total impact is associated with “indirect and induced” employment by suppliers and service providers to the transmission construction and equipment manufacturing activities. The investments associated with the identified Canadian transmission projects are estimated to support approximately 50,000 full-time jobs per year on average over the next several years and over 20,000 full-time jobs per year through 2030 based on already-planned transmission investments.

A portion of the projected transmission investments will also enable development of the renewable generation projects needed to satisfy existing state and potential future federal RPS requirements. This renewable generation investment will additionally support approximately 2.6 million to 5 million FTE years of employment, or on average support 130,000 to 250,000 full-time jobs during each year of the projected 20-year renewable generation construction effort. Additional employment benefits are associated with the approximately 20-year operations phase of these projects.